Fed Raises Interest Rates by 0.75 Percentage Point for Third Straight Meeting

The decision Wednesday—unanimously supported by the Fed’s 12-member rate-setting committee—will lift its benchmark federal-funds rate to a range between 3% and 3.25%, a level last seen in early 2008.

Officials’ new projections showed a majority of 19 officials who participated at the Fed’s policy meeting expect to lift the rate at least by another 1.25 percentage point by December, to a range between 4.25% and 4.5%. The Fed has two more meetings this year.

Most of the 19 officials who participated at the Fed’s policy meeting expect to lift the rate at least by another 1.25 percentage point by December, to a range between 4.25% and 4.5%, according to their new projections, released Wednesday. The Fed has two more meetings this year.

Officials’ projections show greater uncertainty over what might happen to rates after that. Around one third of officials expect rates to stay above 4% through 2024, and another third see the Fed cutting rates to between 2.5% and 3.5% in 2024. The remaining third have rates declining to somewhere in between.

“We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses,” said Fed Chairman

Jerome Powell

at a news conference on Wednesday afternoon.

Fed officials are raising rates at the most rapid pace since the 1980s and have approved increases at five consecutive policy meetings, starting in March when they lifted rates from near zero. Until June, the Fed hadn’t raised rates by 0.75 point since 1994.

The central bank has also initiated a program to withdraw stimulus by shrinking its $8.8 trillion asset portfolio through attrition; the Fed is passively reducing its holdings by up to $95 billion a month as those securities mature.

Evidence is growing that the Federal Reserve has fallen well behind on inflation and needs to make up for lost time. WSJ’s Dion Rabouin explains how we got here and what the Fed is doing to catch up. Illustration: Ryan Trefes

Wednesday’s projections showed that most officials expect higher unemployment over the next year, implying rising recession risks. The median projection showed officials expect the unemployment rate, which stood at 3.7% in August, could rise to 4.4% at the end of 2023. That type of increase has seldom occurred without a recession.

Officials revised higher their inflation forecasts over the next year. They projected so-called core inflation, which excludes volatile food and energy prices, at 4.5% by the end of this year, above their projections of 4.3% in June and 4.1% in March. The Fed seeks average annual inflation of 2%.

“Inflation is running too hot. You don’t need to know much more than that,” said Mr. Powell. “If that’s the one thing you know…it’s that this committee is committed to getting to a meaningful, restrictive stance of policy and staying there until we feel confident that inflation is coming down.”

Officials projected core inflation would fall to 3.1% by the end of 2023, up from a projection of 2.7% in June.

Core prices rose 4.6% in July from a year earlier, as measured by the Fed’s preferred gauge, the Commerce Department’s personal-consumption expenditures price index. Based on more recent data, Wall Street forecasters estimate the measure rose 4.8% in August.

A separate inflation measure released last week, the Labor Department’s core consumer-price index, rose 6.3% in August from a year earlier. Inflation hasn’t significantly worsened this summer, but it hasn’t improved, either. Falling gasoline prices held down overall inflation in July and August, but climbing housing costs and prices for services such as dental and hospital visits, haircuts and car repairs have kept inflation elevated.


How should the Fed be addressing inflation? Join the conversation below.

Meantime, the labor market has remained strong despite signs of a slowdown in some parts of the economy. The economy has added an average of 380,000 jobs monthly over the past six months, far above the rate of about 50,000 that economists think would keep the unemployment rate steady. Average hourly earnings for private-sector workers rose 5.2% in the 12 months through August, a level that could keep inflation above the Fed’s target.

The fed-funds rate, an overnight rate on lending between banks, influences other consumer and business borrowing costs throughout the economy, including rates on mortgages, credit cards, saving accounts, car loans and corporate debt. Raising rates typically restrains spending, while cutting rates encourages such borrowing.

Other central banks in wealthy economies, including the U.K., Europe, and Canada, have also been raising rates in historically large increments, creating the most rapid tightening in global monetary policy since 1989, according to economists at Credit Suisse.

Markets have stumbled over the past month, beginning in late August when Mr. Powell warned that continued rate rises would “bring some pain to households and businesses.” Expectations for tighter policy escalated again after last week’s inflation report, driving yields on the policy sensitive 2-year Treasury note to a 15-year high.

Write to Nick Timiraos at nick.timiraos@wsj.com

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